Asian Shares Fall as Fed Hikes Rates

Asian shares edged lower on Thursday, following the Federal Reserve’s rate hike decision and forecast about raising its key interest rate at a slightly faster pace this year, while a slow Chinese economy and trade tensions between the US and China hit investor sentiment as well.

MSCI's broadest index of Asia-Pacific shares outside Japan was down by 1.04 percent to $564.88, with South Korea’s KOSPI falling by 1.8 percent to ₩2,423.48 and Taiwan Weighted losing 1.4 percent to NT$ 11,013.98.

Fed Hikes Rates, Indicates Two More Increases This Year

The Fed hiked its benchmark short-term rate a quarter percentage point from 1.75 percent to 2 percent on Wednesday, as expected, and signaled two more increases this year, as officials saw strong US economic growth.

The committee stated that the economy has been expanding at a solid rate, seeing that unemployment rate has been shrinking and household spending improving.

Considering those factors, Fed policymakers said two additional rate hikes seem to be appropriate, which brings the 2018 total to four increases. The central bank’s latest decision was the second this year after it first raised rates in March.

Fed’s confidence about the US’ economic condition could also mean higher borrowing costs for automobiles, home mortgages, and credit cards over the next year, as the bank expects to pick up the pace of future hikes.

China Stocks Decline after Weak Economic Data

Chinese equities also dropped on Thursday after China’s economic momentum showed signs of slowing down in May and as renewed trade war concerns kept investors on edge.

Economist Chnag Liu said the support to industrial output growth from the removal of the government’s pollution controls at the end of March has now faded, adding that with the headwinds from slower credit growth increasing, economic expansion might continue to weaken in the second half of 2018.

The People’s Bank of China (PBC) also left its interest rate unchanged rather than follow Fed, with some economists expecting it to ease its reserve-ratio requirements for the nation’s banks.

Concerns over the US plans to impose tariffs on billions of dollars in Chinese products has curbed investors’ sentiment as well.

US President Donald Trump will be discussing with his top trade advisors later in the day on whether to carry through $50 billion of tariffs on Chinese goods after the two countries failed to see eye to eye on a trade deal.

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